Vadodara Corporation plans to raise money via municipal bonds

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Daily Current Affairs Article 26th December 2020: The Vadodara Municipal Corporation (VMC) is expected to launch municipal bonds in January, and will become the third Urban Local Body (ULB) in Gujarat to use this method to raise money to fund development work sanctioned under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT).

Ahmedabad was the first city in south Asia to launch a municipal bond of Rs 100 crore in 1998. Surat Municipal Corporation was the second city in Gujarat to announce bonds in 2018.

A municipal bond is a kind of debt instrument where investors offer loans to local governments.

They are issued by civic bodies for specific projects and usually have a 10-year tenure.

The ULB pays the annual interest on the bonds to the investor at the decided rate. The difference between a bank loan and a municipal bond is that any institution can secure a bond only if it has favourable credit ratings.

The bond helps raise funds from the stock market. The bond also increases the number of investors available to the civic body, as compared to a loan from a single bank.

Under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) scheme, urban local bodies (ULBs) are encouraged to tap the bond market. Bonds help ensure improved credit profiles, direct transfer of funds by the Centre, transparency and efficient revenue generation.